Removal of trustees

A trustee is obligated to demonstrate integrity, transparency, and sincerity towards the trust’s beneficiaries.

Their actions must align with the optimal interests of the trust. Failure in this regard could expose them to the possibility of being dismissed from their role, along with potential financial penalties.

There are several situations where removing a trustee from a trust may be necessary, whether for practical reasons, such as replacing a trustee due to death or retirement, or to ensure the trust is properly managed. In some cases, trustee removal is essential to maintain the trust’s administration, particularly when disputes arise. Court applications for trustee removal often stem from conflicts between trustees and beneficiaries, especially where tensions or disagreements impact the effective management of the trust.

What is a removal of trustees?

A removal of trustees refers to the legal process of removing a trustee from their position due to misconduct, incompetence, or breach of fiduciary duty. This process typically involves issuing a claim at court, providing evidence of the trustee’s wrongdoing, and seeking a court order to remove them from their role. However, most trustees and beneficiaries will seek to negotiate to avoid the need for court hearings and an eventual trial.

Trustees are bound by principles of transparency, integrity, dedication, and fairness to the trust’s beneficiaries. They must prioritise the trust’s welfare whilst balancing the interests of the beneficiaries; failing which, they face potential removal and associated cost implications.

There are several avenues to pursue a trustee’s removal, contingent on the case’s specifics:

1. Using a direct provision within the trust agreement.
2. Utilising Section 36 of the Trustee Act 1925.
3. Resorting to Section 41 of the Trustee Act 1925 to leverage the Court’s authority.
4. Application of the Court’s intrinsic powers.
5. Mandatory retirement driven by a beneficiary’s directive as per Section 19 of the Trusts of Land and Appointment of Trustees Act 1996.
6. Substituting a trustee who lacks mental capacity under Section 20 of the aforementioned 1996 Act.

Statutory powers of trustee replacement

Section 36 Trustee Act 1925 – Replacing a trustee without court intervention

Under Section 36 of the Trustee Act 1925, a trustee can be replaced without court involvement in certain situations, including:

• The death of a trustee.
• A trustee being absent from the UK for over 12 months.
• A trustee wishing to retire.
• A trustee refusing or being incapable of acting.
• A trustee being under 18 years old.

The power to appoint a new trustee must be exercised in writing and is typically carried out by those named in the trust deed or by the remaining trustees.

Section 41 Trustee Act 1925 – Court-appointed trustee replacement

If replacing a trustee under Section 36 is not possible, an application can be made to the court under Section 41 of the Trustee Act 1925. The court will only grant the request if:

1. It is expedient to appoint a new trustee.
2. It is impracticable or difficult to replace the trustee without court intervention.

The court may intervene when a trustee lacks capacity, is bankrupt, or if a corporate trustee has been dissolved. Only a trustee or beneficiary may apply under this section if there is no alternative mechanism for removal.

Court’s inherent power to remove or replace a trustee

The court has inherent jurisdiction to remove or replace a trustee where necessary. This power is exercised cautiously and typically only when a trustee’s actions jeopardise the proper administration of the trust or the welfare of beneficiaries.

A beneficiary or co-trustee may apply for removal if there is evidence of mismanagement, breach of trust, or misconduct. However, personal disputes or hostility between trustees and beneficiaries are not usually sufficient grounds unless the conflict seriously impedes the trustee’s ability to perform their duties.

In deciding whether to remove a trustee, the court considers:

• The best interests of the beneficiaries and the proper administration of the trust.
• Whether the trustee’s continuation in office would be detrimental to the trust.
• The intentions of the settlor and the original structure of the trust.

Breach of trust and trustee liability

A breach of trust occurs when a trustee fails to comply with the trust terms or breaches their fiduciary duties. Examples include:

• Mismanaging trust assets or making poor investment decisions.
• Distributing funds to an ineligible beneficiary.
• Acting with a conflict of interest or engaging in self-dealing.

If a trustee is found to have breached their duties, they may be removed and held personally liable for losses caused to the trust. In extreme cases, the court may issue injunctions to prevent further damage.

Seeking legal advice

Whether you are a trustee facing removal, a beneficiary concerned about mismanagement, or need assistance appointing a new trustee, expert legal guidance is essential. Our specialist trust disputes solicitors can advise on the best course of action, whether through negotiation, mediation, or court proceedings.

If you need help with trustee replacement or removal, contact us today to discuss your situation.